What to know about health insurance rebates

By Craig Sturgill

Each year, insured Americans could receive a rebate from their insurance provider. Health insurance companies are required by law to use at least 80% of all insurance premiums for health-related costs. If insurers have more than the allowed amount in surplus, they must pay the difference back to policyholders.

Let’s look at how much of a rebate is available for policyholders, how the reimbursement is calculated, and how to get your refund if you're eligible.

How much is being returned to policyholders?

It's estimated that 8.2 million Americans will receive a rebate for the premiums paid into their health insurance by Sept. 30. How much each person gets will depend on various factors.

Among the factors that come into play are your insurance company and where you live. However, the estimate for policyholders of public marketplace plans is about $141 per person, $155 per person for those covered through small employer plans, and $78 per person for those who receive coverage through large employer plans.

How is the total rebate calculated?

The total rebate amount is calculated by averaging a rolling three-month average. This year's rebate is an average based on 2019, 2020 and 2021.

The rebate is part of an Affordable Care Act rule regarding the medical loss ratio. The ACA rule requires insurers working in the individual and small group markets to spend at least 80% of premium revenue on the health care costs of policyholders. Insurance companies that insure large groups must keep an 85% expenditure on health care costs.

The health insurance premiums can be used to pay for other business-related items such as marketing and administrative costs. The leftover costs must not exceed the threshold. Otherwise, they must be refunded to the policyholders.

How do policyholders receive their rebates?

The rebates will come in a few different forms. The insurance companies will either automatically send the rebate check via mail or deduct it from future premiums. If benefits are received from the insurance provided through a group or employer plan, the employer may split the rebate with the policyholder.

How does this year's rebate compare to previous years?

This year's rebate amount is less than that of the previous two years. In 2020, a record $2.5 billion in rebates was issued. The rebate total in 2021 was $2 billion. year for rebates totaling $2.5 billion. There was a total of $2 billion issued in 2021. This year’s total comes in at half of what was issued last year, around $1 billion.

Finding out if you're getting a rebate

After the rebate notices are mailed out in September, a federal government summary will detail the amount owed by each company to the state. The health insurer will notify eligible beneficiaries after rebate amounts have been determined.

We all love getting money back as rebates. Still, it outlines a significant issue with how premiums are higher than needed. This new limit on what profits can be used for could possibly help bring the monthly costs of health care down to a reasonable standard.

Another factor that can help lower health care premiums is having more insurance carriers offering policies in the individual and group markets. The competition has been relatively low in this space since 2015. The combination of both the ACA rule and more insurers providing insurance options could help lower and contain raising insurance premiums.

Craig Sturgill is chief strategy officer and cofounder of Excel Impact. Craig may be contacted at [email protected].